Last minute tax saving investment good for you?
Updated on 03-03-2021
Tax is a necessary evil in our lives.
Have you ever wondered if last minute tax saving investment is good for your financial health?
While there are several tax saving investment options, one can go with 80C investments and look at some benefits of making tax saving investments.
While the core purpose of making 80C investments is getting tax deductions,these investments offer returns. Hence, having the mindset of an investor can help you make the most of the investments.
Let’s look at the scenario and the difference in the return potential by investing at the beginning of the financial year as opposed to just before the end of the financial year.
Suppose you fall in the 30% tax bracket and decide to make full use of Section 80C to get a tax deduction. While most investments under Section 80C are fixed-income investments, ULIPs and ELSS schemes offer market-linked returns.
Let’s say that you invested in all these instruments in the following manner:
- PPF – Rs.50000 @ 8% p.a.
- Tax-Saving FD – Rs.50000 @ 7% p.a.
- EPF – Rs.50000 @ 8.5% p.a.
Let’s talk about the financial year 2020-21 and look at the potential returns at the end of 15 years i.e 2036.If you stay invested for all 15 years starting April 2020 (beginning of the financial year) vs. February 2021 (end of the financial year):
|
Investment |
Amount |
Interest Rate |
Maturity amount as of February 2036 |
|
|
PPF |
50000 |
8% |
Investment made in April 2020 |
16.17 lakh |
|
Investment made in February 2021 |
14.66 lakh |
|||
|
Tax-saving FD |
50000 |
7% |
Investment made in April 2020 |
14.75 lakh |
|
Investment made in February 2021 |
13.44 lakh |
|||
|
EPF |
50000 |
8.5% |
Investment made in April 2020 |
16.93 lakh |
|
Investment made in February 2021 |
15.32 lakh |
|||
You can see, despite investing the same amount with the same rate of interest, the potential returns can get can be reduced by around Rs.1-2 lakh.
When you put off tax-saving investment decisions until the last moment, you are pressed for time. This rush can lead to mistakes that can hurt your financial portfolio in the long-run.
So an early investment is always better, as a planned approach to tax saving investments can help avoid drawbacks with ease.
You can also use GIIS Financial tools or Our Android App for Investment, tracking and Asset allocation planning.
*Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
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